Katahdin Trust Company
From: Jon Prescott
Sent: Monday, September 13, 2004 8:53 AM
To: Comments
Subject: RIN No. 3064-AC50
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: RIN Number 3064-AC50: FDIC Proposed Increase in the Threshold
for the Small Bank CRA Streamlined Examination
Dear Sir or Madam:
I am Jon J. Prescott of Katahdin Trust Company, located in northern
Maine, an extremely rural area with many small towns of as few as
750 residents). My bank is $330,000,000 in total assets, and subject
to the large bank CRA exam. I am writing to strongly support the
FDIC's proposal to raise the threshold for the streamlined small
bank CRA examination to $1 billion without regard to the size of
the bank's holding company. This would greatly relieve the regulatory
burden imposed on many small banks such as my own under the current
regulation, which are required to meet the standards imposed on the
nation's largest $1 trillion banks. I understand that this is not
an exemption from CRA and that my bank would still have to help meet
the credit needs of its entire community and be evaluated by my regulator.
However, I believe that this would lower my current regulatory burden
by many man-hours and help to alleviate the related costs.
I also support the addition of a community development criterion
to the small bank examination for larger community banks. It appears
to be a significant improvement over the investment test. However,
I urge the FDIC to adopt its original $500 million threshold for
small banks without a CD criterion and only apply the new CD criterion
to community banks greater than $500 million up to $1 billion. Banks
under $500 million now hold about the same percent of overall industry
assets as community banks under $250 million did a decade ago when
the revised CRA regulations were adopted, so this adjustment in the
CRA threshold is appropriate. As FDIC examiners know, it has proven
extremely difficult for small banks, especially those in rural areas,
to find appropriate CRA qualified investments in their communities.
Many small banks have had to make regional or statewide investments
that are extremely unlikely to ever benefit the banks' own communities.
That was certainly not intent of Congress when it enacted CRA.
An additional reason to support the FDIC's CD criterion is that it
significantly reduces the current regulation's "cliff effect." Today,
when a small bank goes over $250 million, it must completely reorganize
its CRA program and begin a massive new reporting, monitoring and
investment program. If the FDIC adopts its proposal, a state nonmember
bank would move from the small bank examination to an expanded but
still streamlined small bank examination, with the flexibility to
mix Community Development loans, services and investments to meet
the new CD criterion. This would be far more appropriate to the size
of the bank, and far better than subjecting the community bank to
the same large bank examination that applies to $1 trillion banks.
This more graduated transition to the large bank examination is a
significant improvement over the current regulation.
I strongly oppose making the CD criterion a separate test from the
bank's overall CRA evaluation. For a community bank, CD lending is
not significantly different from the provision of credit to the entire
community. The current small bank test considers the institution's
overall lending in its community. The addition of a category of CD
lending (and services to aid lending and investments as a substitute
for lending) fits well within the concept of serving the whole community.
A separate test would create an additional CD obligation and regulatory
burden that would erode the benefit of the streamlined exam.
As mentioned earlier, my bank's entire market area is extremely rural
in nature, as well as low-income. I strongly support the FDIC's proposal
to change the definition of "community development" from
only focusing on low- and moderate-income area residents to including
rural residents. I think that this change in the definition will
go a long way toward eliminating the current distortions in the regulation.
We caution the FDIC to provide a definition of "rural" that
will not be subject to misuse to favor just affluent residents of
rural areas. Due to the low income demographics and very low population
density, Katahdin Trust Company's entire loan portfolio consists
of loans a) to rural consumers and small businesses and b) in large
part to low-income consumers and marginally profitable small businesses.
These factors alone should qualify our lending programs as community
development lending.
In conclusion, I believe that the FDIC has proposed a major improvement
in the CRA regulations, one that much more closely aligns the regulations
with the Community Reinvestment Act itself, and I urge the FDIC to
adopt its proposal, with the recommendations above. I will be happy
to discuss these issues further with you, if that would be helpful.
Sincerely,
Jon J. Prescott
President & CEO
Katahdin Trust Company
11 Main St. PO Box 450
Patten, ME 04765
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